ombudsman news

issue 129

October 2015

complaints involving credit and hire purchase

People might not automatically associate things like cars, furniture and solar panels with the financial ombudsman. But they can all be bought using credit. And - in certain circumstances - the financial business that provided the credit can be held liable if something goes wrong.

For the most part, this extra protection comes from the Consumer Credit Act - section 75 in particular. If hire purchase is involved, the Supply of Goods (Implied Terms) Act 1973 will apply.

The limits that apply under these rules can be complicated - and may be at the root of the dispute that we’re called in to sort out. Credit providers as well as their customers can both be confused, and we often need to explain how things stand as part of deciding a way forward.

In most cases involving section 75, we’ll need to establish whether there’s been a breach of contract on the part of the supplier of goods or services - or whether they were misrepresented to the person buying them. This can involve, for example, finding out what someone was told about the thing they were buying - compared with what they actually received.

Most complaints we see about hire purchase involve finance agreements for vehicles. We’ll need to decide whether the vehicle matches what the customer was told they were getting - and whether the quality is satisfactory.

If we find that a credit provider has wrongly refused to deal with a claim made under these rules, we’ll generally tell them to cancel the agreement and give a refund. Depending on the circumstances, we may suggest another practical solution that both sides agree is fair.

As our case studies show, given the wide range of everyday goods and services that can be bought on credit, problems with credit agreements can have a range of consequences for people’s lives. In putting things right, we’ll consider the trouble or extra costs someone’s experienced as a result of the credit provider’s mistake - for example, being left without a car to get around.

This month the new Consumer Rights Act comes into force - which may be relevant to some complaints that we see in the future. The Act changes some key rules around buying goods and services and makes existing law in this area easier to understand.

index of case studies

129/7 - consumer complains that finance provider took car without her consent

129/8 - consumer complains that he was mis-sold a loan for an energy-saving heat pump and solar panels

129/11 - consumer complains that he wasn't told important information about the sunroof when he bought a new car

129/12 - consumer complains that finance provider won't refund part of her home alarm contract - after supplier goes out of business

129/7
consumer complains that finance provider took car without her consent

When her hours were cut, Ms E began to have financial difficulties - and missed a payment on her car hire purchase agreement.

She contacted the finance provider, explaining she wanted to end the agreement under a “voluntary termination”. After a discussion about Ms E’s account history - including some unpaid arrears - it was agreed she would instead “voluntarily surrender” the car, allowing the finance provider to sell it at auction.

After the finance provider took the car a few days later, Ms E complained - saying she’d changed her mind. She said the finance provider hadn’t had her written consent to take the car - and believed she was now entitled to all her money back.

The finance provider maintained they’d had Ms E’s consent - and had followed the instructions she’d given. Ms E disagreed and contacted us.

complaint not upheld

We looked at the terms of Ms E’s finance agreement. These said that if a vehicle was taken back without a court order or the customer’s consent, the customer had the right to get back any money paid under the agreement.

The finance provider hadn’t had a court order in Ms E’s case, so we needed evidence about whether she’d given her consent.

The finance provider sent recordings of the conversations they’d had with Ms E over the phone. In our view, when Ms E first called the finance provider, they’d clearly explained her options - and she’d clearly agreed to surrender her car.

It appeared that Ms E had later phoned the finance provider asking for more time to think. But she’d called them back the same day to say she wanted to go ahead, telling the finance provider where her car was parked.

From the finance provider’s records, we could also see they’d asked Ms E to send them her written consent to take the car. She’d rung back twice to check they’d got it. And when she was told they hadn’t, she’d said she’d send another letter.

We appreciated that Ms E might have had second thoughts - and was disappointed about losing her car. But from what we’d seen, it was clear she’d wanted the voluntary surrender to go ahead before it actually happened.

We explained to Ms E that we didn’t think the finance provider had acted unfairly - or that she was entitled to her money back.

129/8 consumer complains that he was mis-sold a loan for an energy-saving heat pump and solar panels

Mr K and his wife, both retired, were worried about their energy bills. After receiving a marketing call about a “government scheme”, they arranged for a home improvements company to replace their boiler with a heat pump and install solar panels.

A few weeks later Mr K contacted the company to say that the heat pump wasn’t working properly. While trying to resolve the problem, Mr K complained that he hadn’t known he, not the government, was paying for the improvements - through a loan - and asked for his money back.

The home improvement company referred Mr K’s complaint to the loan provider. When the loan provider refused to refund him, he contacted us.

complaint resolved

We asked Mr K to tell us more about how the energy-saving measures had been sold to him. He explained that after the phone call, two salesmen had visited his home. Mr K said the salesmen had spent several hours at his home - presenting graphs they said were from a government website, showing that the couple could save thousands of pounds.

Mr K remembered being asked to sign some forms. He said the salesmen had told him that the costs listed on the form simply showed how much the government would have to pay for the installation.

Mr K said he’d been told he’d save around £25,000 over the next 20 years. On the other hand, it seemed the finance agreement was for £40,000 over ten years. This clearly didn’t make financial sense - and we didn’t think Mr K would have gone ahead if the full costs had been explained to him.

There was nothing to contradict Mr K’s version of events - and in the circumstances, we decided that Mr K hadn’t known what he was signing up for.

Mr K told us that, while he was very unhappy with the heat pump, he’d like to keep the solar panels. The finance provider agreed to take out the heat pump and reinstall the boiler. And following a discussion with us and Mr K, they arranged a new interest-free loan for the solar panels only - which significantly reduced the monthly cost.

129/9
consumer complains about van bought on hire purchase

Miss G bought a van on hire purchase, but soon after discovered several problems with it. When the problems continued despite attempts to put them right, she said that she wanted to return the van and cancel the finance agreement.

An independent inspection of the van - arranged by the finance provider - concluded that the van’s faults were down to wear and tear, and poor maintenance. Based on this, the finance provider refused to cancel the agreement - saying the inspection didn’t prove that the damage arose before Miss G bought the van.

The van then failed its MOT and a second independent inspection was carried out. This time the engineer concluded that the van was “of unsatisfactory quality at the time of purchase”.

When the finance provider still wouldn’t change their decision, Miss G got in touch with us.

complaint upheld

To decide if the finance provider had acted fairly, we needed to establish the condition of the van when it was sold to Miss G. This meant looking closely at the two independent reports - and deciding which was more reliable.

The first report confirmed that there were several separate faults with the van - and concluded that these were down to wear and tear, and poor maintenance. However, it didn’t mention when the faults might have arisen - or how long the poor maintenance had been ongoing.

On the other hand, it seemed the second report was far more specific. The engineer had estimated how long the faults had been present - which was far longer than Miss G had owned the van.

The second engineer had also pointed out that the van hadn’t been serviced in the four years before Miss G bought it. In our view, this backed up the conclusion that it had been poorly maintained before Miss G bought it.

On balance, we decided that the findings of the second, more detailed report were more reliable - and that it was likely the van hadn’t been of satisfactory quality when Miss G bought it.

To put things right, we told the finance provider to let Miss G return the van and cancel the hire purchase agreement. We also told them to refund Miss G’s initial deposit for the van and all the monthly payments she’d made since the failed MOT - adding 8% interest.

Mrs O bought a new sofa on a “buy now, pay later” credit agreement with a catalogue company.

The day after it was delivered she phoned the company to say one of the seat covers had a fault. She was told the company would look into it.

A couple of weeks later - having heard nothing since - Mrs O called the company again to say that one of the arms of the sofa had completely lost its shape. She said the sofa was faulty and that she wanted to return it.

The catalogue company then sent one of their technicians to look at the sofa. The technician reported that there were no manufacturing faults. He believed that the sofa arm had its lost shape because Mrs O’s son had been lying across the sofa and resting his head on the arm.

Based on the technician’s findings, the catalogue company told Mrs O that she wouldn’t be able to return the sofa - and would have to pay £45 for the technician’s report.

Mrs O complained - but when the catalogue company refused to reconsider, she contacted us.

complaint upheld

We asked the company for a copy of the report. It didn’t seem their technician’s report had suggested any alternative reason for the wear to the sofa. The only explanation he’d put forward was that someone, Mrs O’s son, had been lying on it.

But in our view, lying across a sofa was a perfectly normal thing to do - and a sofa should be fit for this type of general use. In any case, considering Mrs O’s sofa had been less than a month old when the technician carried out his report, we didn’t think it was reasonable for it to have already been showing signs of wear.

From the catalogue company’s records, we could see that they’d recorded Mrs O’s initial concerns about the seat cover. No one seemed to have followed this up. But we thought it suggested there had been manufacturing problems with the sofa from the start. Mrs O sent us photos showing the sofa had disintegrated further in the meantime, meaning it was unusable.

Overall, we thought it was likely that the sofa had been faulty when Mrs O bought it.
We told the catalogue company to cancel Mrs O’s credit agreement, to ensure it didn’t show on her credit records, and to pay £150 to reflect the inconvenience their poor service had caused.

In the circumstances, we also told the company to repay the £45 technician’s charge.

129/11
consumer complains that he wasn't told important information about the sunroof when he bought a new car

Mr A bought a new car on finance from a local dealership. He’d sat in the test model in the showroom - but when his car was delivered he found that there wasn’t enough headroom inside for him to drive comfortably.

Mr A took the car back to the dealership, who adjusted his seating position. When the problem persisted, the dealership then said that the sunroof might be the cause of Mr A’s problem. According to the dealership’s technician, this had reduced the headroom in the car by nearly two inches in this model - but this was perfectly normal.

Mr A contacted the finance provider, saying he was unhappy that he hadn’t been told about this when he was deciding whether to buy the car. He was concerned that he’d never be able to drive his car comfortably.

The finance provider told Mr A that it was his responsibility to check that the car was suitable for him. They wouldn’t allow him to reject the car completely - but instead offered to part exchange it for another without a sunroof.

But Mr A wanted a car with a sunroof - so when the finance provider refused to change their mind, he contacted us.

complaint upheld

Mr A sent us a video of himself sitting in the driver’s seat of his car - showing that he wasn’t able to drive without leaning forward or to the side. We checked a number of independent websites and confirmed that installing a sunroof in the model Mr A had chosen would reduce the headroom by nearly two inches.

We asked to see the sales brochure that Mr A had been given. However, the space reduction wasn’t mentioned.

Mr A was around average height. This suggested the reduction in headroom could affect a significant number of people - so we thought it was important information that needed to be brought to customers’ attention.

In our view, we didn’t think it was reasonable to expect Mr A to know the impact of installing a sunroof in different models of cars.

We also noted that a newer sales brochure that Mr A sent us did mention the reduced headroom. So it seemed the car manufacturer now thought this was information customers needed to be given.

We decided that if Mr A had been told about the reduction in headroom, he wouldn’t have bought the car with the sunroof. So we told the finance provider to cancel the agreement, refund the deposit Mr A had paid, adding interest - then to let him reject the car, writing off any remaining debt.

To reflect the discomfort Mr A had experienced whilst driving the car, we suggested the finance provider refund 30% of the any payments he’d made over that period. We also told them to pay £150 for the poor service Mr A had received.

129/12
consumer complains that finance provider won't refund part of her home alarm contract - after supplier goes out of business

Mrs M took out a point-of-sale loan to buy a home alarm, and at the same time paid for monitoring and maintenance services for 10 years. But a couple of years later, the alarm company went out of business and so could no longer carry out the monitoring and maintenance.

By this time, Mrs M had already paid back the loan. She got in touch with the finance provider to ask for a refund for the ongoing services that she now wouldn’t receive.

But the finance provider refused. They said that the contract Mrs M had with the company was for the alarm only - and didn’t include the cost of monitoring and maintenance. They said this service was a free add-on.

Mrs M complained, saying the monitoring and maintenance were part of the alarm package. When the finance provider wouldn’t reconsider, she contacted us.

complaint upheld

Mrs M sent us the information she’d been given before buying the alarm. This clearly mentioned “24 hour monitoring day in, day out” and “10 years’ free monitoring and maintenance”.

We asked the finance provider for a copy of the finance agreement. The agreement said that the loan was for the “alarm system and installation only” - but then went on to refer to a “total package price”.

The money Mrs M had borrowed was also listed on the agreement as a “monitoring and maintenance set-up fee”.

In our view, both the agreement and the other information Mrs M had been given suggested that the 10 years’ monitoring and maintenance was part of the package she was paying for.

Mrs M told us she’d bought another alarm with monitoring and maintenance as soon as the alarm company had stopped trading. Given this, we thought that the monitoring and maintenance was a key factor in her decision to buy the original alarm.

In light of what we’d seen, we decided there had been a breach of contract. To put things right, we told the finance provider to give Mrs M a partial refund - taking into account the cost of the monitoring and maintenance services that she’d received before the alarm company went bust - adding 8% interest.